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• Warren Schneider
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HARRIS: Steve, we see clients going through settlement money quickly and being left without funds, or sometimes we find out later that they looted the set-aside account and misused the money meant for medical treatment. How can we protect our clients from themselves or greedy relatives?

CHAPMAN: The structured settlement legislation that was signed into law in 1982 (Periodic Payment Act of 1982) was primarily designed to ensure that settlement funds would be available for physically injured individuals for the rest of their lives. The most common structured settlements provide for tax-free lifetime monthly payments, regardless of how long the individual lives; additionally, guarantee periods can be put on the payments so that if the applicant were to pass early, there is an opportunity for named beneficiaries to receive money after the death of the applicant.

The structured settlement is often thought of as a tool to protect the applicant from themselves. The structure provides a monthly or annual budget of tax-free dollars that is guaranteed; the payments will not fluctuate from the established contract, even during adverse economic conditions. The applicant has a known and stable source of income. The structured payments, once agreed upon, cannot be altered; therefore the applicant needs to work with a structured settlement expert to identify short- and long-term goals and create a plan that allows for the needs of that particular individual. The payments made through a structured settlement are made periodically, preventing outside individuals from absconding with all of the funds. While some may feel that a set payment plan is too restrictive, it allows the applicant to budget for their future needs, and as we will discuss later, a well designed structured settlement will allow for cash up front to cover unexpected contingencies which may arise.

In the case of a large Medicare set-aside providing for lifetime medical needs, a professional custodial company can be utilized to ensure that the MSA funds are expended correctly, thus preserving the Applicant’s future Medicare benefits. I have found that in situations where the injuries are serious and the MSA large, the comp carrier is often willing to cover the cost of a professional custodial company on top of the agreed-upon settlement figure.

For more information on structured settlements and the structure broker’s role, see:

Understanding the Basics so you can deal with the Unique Or How to Effectuate Structured Settlements Presented by Steven F. Chapman at CAAA Winter Convention 2007


Getting Your Cases Settled and Your Cash Flowing Presented by Steven F. Chapman at CAAA Winter Convention 2007

Structured Settlements: Tips from a Structure Specialist

Structured Settlements: Why a Structure Specialist Reviews
Subpoenaed Record




HARRIS: How do we get paid when we settle future medical treatment by way of a structure? It involves a good deal of attorney time to complete the process, yet some practitioners feel they cannot ask for a fee from the set-aside money. How much should we receive, and who pays?

CHAPMAN:
The phrasing of your question raises some very important points. On a technical level, the attorney fee cannot come from the Medicare set-aside; an attorney fee needs to be paid in addition to the Medicare set-aside amount. The fee should be 12-15% of the present value cost of the set-aside. The funds from the set-aside can only be used to pay for Medicare related medical expenses related to the industrial injury.

As has often been discussed in presentations I have given at various CAAA conventions and local chapter meetings, the value of settling the future medical component is greater than the value of the Medicare set-aside alone. It is the responsibility of the applicant’s attorney to analyze the various non-Medicare medical components related to the future medical needs of the applicant. The major components of non-Medicare medical begin with the prescription co-pay and "donut hole” relating to Part D of Medicare. This component can run as high as $300 per month. Second, once the set-aside is exhausted, Medicare only covers 80% of the Medicare related expenses. In order to address this issue, the applicant can obtain a Medigap supplemental insurance policy which will cover the 20% that Medicare does not cover. In larger cases, other non-Medicare expenses need to be analyzed: attendant care/housekeeping, transportation/mileage, home modifications, various therapies such as acupuncture, extended physical therapy and psychological counseling sessions, etc. The government publication Medicare and You 2009 outlines in detail those medical components not covered by Medicare.

The analysis and negotiation of the future medical aspect of a case can become very technical and can often require taking depositions, subpoenaing of medical records, or requesting new medical reports to address, in detail, all future medical needs over the remainder of the applicant’s life. In these cases the applicant’s attorney is entitled to 12-15% of the present value of the cost of the structured settlement that covers both the MSA as well as the value of the non-Medicare medical future needs. The attorney fee can be built into the demand for this future medical care. It is very rare to find a situation where the MSA encompasses the full value of the future medical.

For more on how to figure out the value of future medical treatment, click here.

HARRIS: Are personal injury settlements now affected by the Medicare set-aside rules, and how does this affect our third-party Compromise and Releases?

CHAPMAN: At the present time CMS is not requiring a Medicare set-aside on pure liability cases. In those liability cases where there is a work comp component, and the parties desire to close out the comp case via a third party Compromise and Release, an MSA may be required if the applicant is on Medicare or meets the other requirements set forth in the CMS memos. The reason for this is that by closing the work comp case, the parties need to demonstrate to CMS that there is not a shifting of the burden of future medical care to the federal government.

The new legislation that is currently being talked about relates to property and casualty companies and new reporting requirements of the status of injured individuals with open claims. The main purpose for this is to facilitate the recovery of “conditional payments” by Medicare. In other words, the main focus of Medicare at this time is to recover payments made by their agency which may be the responsibility of another party.

For an article by William L. Winslow, Esq. a leading authority on Medicare set-asides, discussing MSA “requirements” in workers’ compensation and personal injury cases, click here.

HARRIS: We hear that interest rates are very low. Does it make sense to enter into a structured settlement in this environment?

CHAPMAN :
I am asked this very often these days. On a daily basis I am able to put together settlements that provide a 5.5-6.5% tax-free internal rates of return. We are able to accomplish these excellent returns because the special annuities that fund the structured settlement are able to take into account any potential loss of life expectancy that may have resulted from the industrial injury and any other medical conditions that the applicant may be suffering from. An example of this would be an applicant that has suffered a back injury and also has non-industrial hypertension and diabetes; the hypertension and diabetes will contribute to a reduction in life expectancy which will allow the annuity, which funds the structure, to be purchased at a reduced cost, thus stretching the settlement dollars and providing for a higher rate of return on the funds invested into the structured settlement. This process of determining the reduced life expectancy is called medical underwriting, and the age given which reflects the reduced life expectancy is called the “rated age”. [For more on “rated age” click here]

 

HARRIS: Are structured settlements safe?

CHAPMAN: Structured settlements are funded with special settlement annuities only offered by a handful of the largest and strongest life insurance companies. The Insurance Industry is more highly regulated than the banking industry; there are reserve requirements which keep the insurance companies highly capitalized. Since October 2008 the insurance industry has taken the opportunity to clean up their balance sheets by disposing of assets that threaten the long-term health of these institutions. When deciding if a structured settlement is a safe alternative to place settlement dollars, the applicant and their counsel need to examine which life insurance company will be utilized. The company’s ratings, as measured by A.M. Best, Moodys, S & P and Fitch, should be analyzed. In larger settlements, it is not uncommon to utilize more than one life insurance company to fund the structured settlement. This will help in diversifying the risk.

Another way to determine if a structured settlement is a safe alternative is to explore the alternatives. Banks have a much higher failure rate than that experienced by the life insurance industry. Additionally, banks cannot offer the guaranteed returns that are offered by a structured settlement. Insurance industry studies have consistently shown that, even with the best of intentions, individuals dissipate settlement dollars very quickly, with most (90%) having nothing left after 5 years, regardless of the size of the settlement.

It is important to remember that in a structured settlement, not all of the money received needs to be placed into periodic payments. There should always be cash available; this cash can be utilized to invest in stocks or new businesses. A balanced settlement plan can and should offer the best of all worlds, guaranteed money at a high rate of return through the structure and cash available for immediate use.

 

Steve Chapman has been a structured
settlement specialist for the past 20 years.
For the past 12 years, he has specialized in workers’ compensation structured settlements.
He has appeared at every Appeals Board
throughout the state of California. During the
past 5 years, he has participated in settlements
totaling over $750 million.

Mr. Chapman strives to remain current on all
issues affecting the settlement of the case,
including Medicare set aside allocations, life
care plans, medical cost trends, Long Term
Disability, and Social Security issues.

To contact Steve Chapman:
Steven F. Chapman
Settlement Professionals, Inc.
12039 Jefferson Blvd.
Culver City, CA 90230
Phone: 800-845-2969
Fax: 310-450-3132
Cell: 310-480-5742
Email: SettleMan@aol.com





 

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Structured Settlements: More Tips
From a Structure Specialist
Interview with Steve Chapman

Steve Chapman specializes in structured
settlements of workers’ compensation cases.
In this interview with Marjory Harris, he talks
about the safety features of structured
settlements, how to settle future medical
treatment, and how to calculate attorney fees.